The Republicans’ tax overhaul plan, which is expected to become law soon, will cause many healthcare organizations to reassess their debt levels.
The tax bill will limit the tax deduction companies take for the interest they pay on their debt to 30 percent of earnings before interest, taxes, depreciation and amortization. This change will put pressure on healthcare companies with heavy debt loads. In 2022, interest expense deductions would be further reduced, which could cause companies’ tax bills to increase further, according to The Wall Street Journal.
Franklin, Tenn.-based Community Health Systems and Dallas-based Tenet Healthcare, which carry about $14 billion and $15 billion of debt, respectively, could be negatively affected by the tax bill’s limit on interest expense deductions. On Tuesday, Tenet said it expects the change to lower its 2018 earnings forecast, according to the report.
In a report issued earlier this month, Moody’s Investors Service said many speculative-grade companies across several sectors, including healthcare, would be negatively affected if deductibility were limited.